TARGET PRICE INCREASES ON BACK OF EBITDA AND MONTHLY ACTIVE USERS STRENGTH
THE TD COWEN INSIGHT
Management expects advertising revenue to grow in the double digits through H2/24 while Monthly Active Users (MAUs) should trend higher in Q3. FORA trades at 6.6x FY24E EBITDA in spite of its HSD to double digit revenue growth rate, margins that remain over 40%, and good FCF conversion. FORA does not deserve to trade below 10x EBITDA with peer RDDT trading at >25x consensus FY25E EBITDA.
Event: Q2/24 results and earnings call. Impact: SLIGHTLY POSITIVE
While Q2/24 revenue fell below our expectations coming into the quarter, y/y revenue growth at 14% was in-line with growth seen in Q1/24. Revenue growth dipped slightly below our expectations due to some direct advertising deals slipping into Q3 from Q2. Direct advertising was flat on a Y/Y basis but management expects to see mid-single digit growth through Q3 and Q4, which should meet or exceed street expectations.
MAUs exceeded our estimate by 9%, EBITDA beat consensus by 6%, and FCF was 120% above consensus, with all three metrics showing meaningful Y/Y growth. These results should support a reversal in the recent weakness that we have seen for the stock, and we believe FORA could be back over $10 soon.
On the earnings call, management noted that they did not have any incremental news regarding potential licensing deals with LLM providers but that constructive conversations continue to take place with multiple providers.
With this note, we have slightly increased our EBITDA forecasts on the back of the EBITDA beat in Q2/24. Our revenue estimates for FY24E have been reduced slightly but our FY25E revenue expectations have remained the same at $73.5M. Additionally, given that we have passed the mid-point of 2024, we have removed the 5% time-value discount on our FY25E 9x EBITDA based target. These changes have resulted in our target price moving to $16.00 from $15.00.
Our comp table in Figure 2 shows that FORA trades at 6.6x and 5.4x FY24E and FY25E EBITDA, respectively, which falls well below its closest comparable in RDDT. While RDDT certainly deserves a higher multiple when compared to FORA, the valuation chasm is not warranted in our opinion given FORA's HSD to double-digit growth rate through FY25E, EBITDA margins that remain above 40% and good FCF conversion. As such, we maintain our BUY rating on FORA and continue to place it among our Top Picks.